India eyes 2 financial strikes on Pakistan after Pahalgam attack: FATF grey listing, IMF loan block

As the tensions between India and Pakistan continue to escalate following the devastating Pahalgam attack, reports are emerging that India is considering two specific moves aimed at curbing financial flows towards Pakistan. According to a report by The Indian Express, one of these efforts is to make a concerted effort to try and bring back Pakistan into the ‘grey list’ of the Financial Action Task Force (FATF).

It is pertinent to note that the FATF is the global money laundering and terrorist financing watchdog. Pakistan was put into the ‘grey list’ back in June 2018 and faced “increased monitoring” till it was removed in October 2022. If a country is part of the ‘grey list’, its FDI automatically gets affected.

In the past, India has argued that putting Pakistan on the list has helped curtail illicit fund flows from Pakistan into India, especially into Jammu and Kashmir.

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A source close to the matter told The Indian Express that the second plan New Delhi is contemplating is to raise objections to the International Monetary Fund’s (IMF’s) continued financing of a $7-billion aid package that commenced in July 2024. The Indian officials argued that these funds are being used for nefarious activities and terror attacks.

How can India send Pakistan back to the ‘grey list’

It is pertinent to note that India’s first plan would require it to initiate a nomination process demanding a ‘grey list’ status for Pakistan. For that, India would require support from other FATF nations.

“There has been a discussion on the steps that could be taken on the financial front. Demanding a ‘grey list’ for Pakistan at the FATF is on the table. But there is a nomination process in FATF and members can ask to take up the matter, which can be approved by the Plenary,” a source close to the matter told The Indian Express.

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The decision-making body of the FATF meets three times a year, usually in February, June and October. If India wants to nominate Pakistan to be part of the ‘grey list,’ New Delhi’s argument has to be based on specific money laundering, terrorist financing (TF), or proliferation financing risks or threats faced by a country.

FATF has 40 member states, and over 200 jurisdictions have been committed to the group through the FATF-Style Regional Bodies. So far, New Delhi has received condolence messages from around 23 FATF member nations, including the UK, the US, France, Germany, Australia, the European Commission, and Gulf Cooperation Council heavyweights such as Saudi Arabia and the UAE.

Pakistan, on the other hand,  is not a member of FATF. However, it is part of the Asia Pacific Group on Money Laundering (APG), the largest FATF-Style Regional Body. India is a member of both APG and FATF. Meanwhile, India is also considering raising objections against Pakistan at the upcoming meeting of the board of the International Monetary Fund (IMF) in May.

With inputs from agencies.